Investment jamboree versus reality check

Last week, Mint, financial daily of the Hindustan Times Group, came up with incisive statistical commentary on the economic wealth of the Indian states. It took the proportion of bank deposits of a province to the nation's overall bank deposits over four decades to support its conclusions.

The findings were very interesting. The fact, that it used bank deposits as an indicator meant that analysis showed not only the state's economic progress but also in several aspects the quality of governance-bank deposits are an absolute indicator of financial inclusion and several other related aspects.

One is utterly disappointed to see the status of Punjab on the list. Having been the finance minister, I know that we have a long way to go for financial inclusion, but what was worrisome was the decline witnessed over the last four decades.

This decline has been at its steepest in the last two decades, time of India's economic liberalisation, when most states, including the previous laggards, have notched ahead. In 1993, Punjab accounted for 4.7% of India's total bank deposits.

Now, this figure stands at a miserly 2.9. The figure appears all the more pitiable when juxtaposed with the leading states. Maharashtra, for example, accounts for almost a quarter of India's total bank deposits.

Like many other economic indicators, this statistic also shows that Punjab has a lot of catching up to do with other progressive states. And when we talk of catch up-in any sphere-it begins usually with getting the basics rights.

As much as I admire the intention behind the government's Progressive Punjab jamboree, I doubt if it can lead to the sort of benefits being claimed-worth Rs 65,000 crore. My scepticism stems from a near absence of the four essential precursors to industrialisation in a state.

First essentialFirst is a strong saving corpus-both public and private. These savings-be it bank deposits or the exchequer's own economic might, provide the basis for capital formation and investments.

The Punjab government's insolvency, the spectre of indebtedness that has haunted our agriculture and the low proportion of bank deposits (as highlighted in the study) perennially shows that we do not fulfil this criterion. For the sake of argument, one may point out, that savings need not be held in bank deposits only, but then Punjab doesn't have a culture of investing in stock markets, government bonds etc.

Second essentialThe second essential is entrepreneurship-the role that can be fulfilled either by the state (as happened in Stalin's Russia) or by private individuals (as happened in post Second World War Japan).

For a long time, Punjab had thriving entrepreneurial stories, as evidenced by our various industry clusters in Jalandhar, Ludhiana, Mandi Gobindgarh etc. But over the years, unfavourable government policies have made these clusters moribund. Worse, present governments have shown no inclination to revive these industries.

On the contrary industry has been burdened by even more unfair taxes. The small-scale industry sectors may not sound glamorous, but outside of IT, they constitute almost two-third of India's exports. More importantly, they build the essential foundation for larger units. Could one imagine a thriving auto cluster in the Pune-Chennai belt had there been no successful small-scale auto component industry in the proximity?

Third essentialThe third essential is affordable real estate. Property prices in Punjab are one of the highest in the country, which is why in spite of strong inclination, many top industrialists have been unable to make base in Punjab.

The DLF Special Economic Zone in Amritsar is one instance. In spite of being announced by the Prime Minister, the project has struggled because of prohibitive land prices. Reliance announced the Farm to Fork project in 2006 amid fanfare, but it has gone nowhere.

Scouting locations for the Nano plant, Ratan Tata's team visited Punjab on more than one occasion, but realised that land prices would make any project unsustainable. One way out could have been a land pool but in spite of a lot of talk around this subject, precious little has happened.

Fourth essentialThe fourth important aspect is infrastructure-social and physical. Courtesy the poor quality of our universities, colleges, and primary education, and the shabby treatment that we mete out to our teachers, few investors have found the skilled young employee force necessary to spur any industrial- or service-sector revolution.

The unsavoury reputation of Punjab's youth being trapped in drugs has exacerbated this situation. The woes of Punjab's physical infrastructure are too well known for me to expound.

Punjab not GujaratIt is convenient to suggest that since Gujarat succeeded by conducting gigantic investor meets, Punjab will find salvation, too. Look at Gujarat (or any other successful industrial state or nation) through the four-point matrix I have mentioned.

Its proportion of bank deposits are much higher than Punjab's (though lower than other states), but then Gujarat has some of the most astute investors in India. The Parekhs, Mehtas, Shroffs invest traditionally, be it in stocks, commodities, futures, derivatives or gilt securities. Two, Gujarat has always had a thriving entrepreneurial system encouraged by successive governments.

The clusters-diamonds, clocks, textiles, chemicals, and pharmaceuticals-have given Gujarat the forward push that Punjab always lacked. Third, by virtue of Gujarat's being a non-agricultural and largely arid state, the land prices are low; and finally, the infrastructure of Gujarat is regarded as one of the finest in India justifiably.

To expect Punjab to witness an industralisation bonanza without fulfilling the four criteria is impossible. It is akin to believing that a pseudo kabbadi world cup will restore the glory days of sport in Punjab.